Abstract
This study aims to investigate the impact of green taxes on income deciles in BRICS countries (Brazil, Russia, India, China, South Africa, and Iran) over the period 1994 to 2020. To achieve this objective, the study employs the novel Method of Moments Quantile Regression (MMQR). The findings reveal three key results. First, green taxes increase income inequality across all deciles; however, contrary to expectations, the magnitude of this effect is stronger in societies that initially have a more equal income distribution (lower structural inequality) a phenomenon we term the "distributional paradox of green taxation." Second, economic growth exacerbates the inequality-increasing effect of green taxes (interaction coefficient ranging from 0.10 in the first decile to 0.14 in the ninth decile). Third, green innovation reduces inequality only in the first through fifth deciles and becomes ineffective in higher deciles. The policy implication is that without targeted redistribution, green taxation risks becoming a tax on poverty an instrument that saves the environment but sacrifices equity.
Purpose/Aims:
Main purpose: The main purpose of this study is to analyze the effects of green taxation on income inequality in BRICS countries.
Secondary purposes: The secondary purposes are to examine (i) the simultaneous effects of economic growth and green taxation on income inequality, (ii) the effects of net exports on income inequality, and (iii) the effects of green technology on income inequality.
Methodology & Framework
Based on the theoretical foundations, the purpose of this study is to examine the relationship between green taxation and income inequality, which inherently involves two variables. However, modeling such a relationship requires a multivariate framework because income inequality can be determined by technical and economic variables. Therefore, key determinants need to be incorporated into the model. Another reason for adding control variables to the model is to address the omitted variable bias, which could lead to invalid estimation results. This is also consistent with studies such as Wolde-Rufael & Mulat-Weldemeskel (2022), which provide the rationale for including these control variables. Accordingly, we employ the following baseline model from Babamu Halidu et al. (2023) in our empirical analysis:
Findings:
Our findings reveal that green taxes in BRICS countries exhibit a regressive effect; however, this regressive effect is not uniform across quantiles. Unexpectedly, the inequality‑increasing effect of green taxes is stronger in societies that initially have lower levels of inequality. This may be attributable to a greater sensitivity to distributional shocks in more equitable societies. Conversely, in societies with high structural inequality, green taxes merely add to the long list of inequality‑exacerbating factors, resulting in a smaller net effect.
The positive and significant coefficients of gross domestic product (GDP) across all deciles (ranging from 0.13 in the first decile to 0.19 in the ninth decile) indicate that GDP is generally associated with an increase in income inequality (i.e., a rise in the Gini coefficient). The increasing trend of these coefficients from lower to higher deciles suggests that economic growth disproportionately benefits higher‑income deciles. In other words, in BRICS countries, economic growth exacerbates inequality, and this effect is stronger in wealthier deciles. These results corroborate the findings of Ofori (2025) and Ahangari et al. (2018).
The coefficient of green taxes is positive and significant across all deciles (ranging from 0.18 in the first decile to 0.17 in the ninth decile). This result indicates that, in the short term, green taxation can increase income inequality. Nevertheless, the slight decline in the coefficient from the first to the ninth decile suggests that the tax burden may fall disproportionately on lower‑income deciles. This phenomenon can be attributed to the ancillary costs of transitioning to a green economy (e.g., rising prices of energy carriers and basic goods), which absorb a portion of the income of poorer deciles. These results are consistent with the findings of Antosiewicz et al. (2022) and Eskandari et al. (2020).
The positive and significant coefficient of the interaction term across all deciles (ranging from 0.10 in the first decile to 0.14 in the ninth decile) indicates that the simultaneous effect of economic growth and green taxes has an exacerbating impact on inequality. The increasing trend of this coefficient from lower to higher deciles shows that the inequality‑increasing effect of green taxes is stronger when accompanied by higher GDP. This finding may reflect more complex economic structures and the greater dependence of high‑income sectors on energy and resources in larger economies.
The negative and significant coefficients of green innovation in the lower deciles (up to the fifth decile) indicate that an increase in green innovation can reduce inequality among lower‑income deciles. This effect can plausibly be explained by the creation of new job opportunities, reduced energy costs, and improved access to clean technologies for lower‑income groups. The gradual decline in significance of the coefficients from the sixth decile upward (even becoming insignificant) suggests that the inequality‑reducing effect of green innovation is concentrated mainly in the lower and middle deciles, with a weaker or ambiguous effect on higher deciles. These results confirm the findings of and Du et al. (2022).
The negative and significant coefficients of net exports from the fourth decile upward indicate that an increase in net exports leads to a reduction in inequality among middle and upper deciles. The insignificance of these coefficients in the first to third deciles suggests that the benefits of foreign trade may not spill over sufficiently to lower‑income deciles. This finding is consistent with the literature on productivity gaps and unequal access to export opportunities in developing countries, corroborating the results of Tabesh et al. (2024), Le et al. (2016), Ahmadi et al. (2016), and Mohammadi & Sakhi (2013).
Discussion:
The main finding of this study that green taxes significantly increase income inequality in BRICS countries appears at first glance to contradict the results of Khalidou et al. (2023), who, using the same method (MMQR) at the global level, found that environmental taxes reduce inequality. However, this apparent contradiction is not a scientific inconsistency but rather a mirror reflecting the profound institutional, structural, and geopolitical differences between BRICS countries and the global average. The key point is that both studies employ the same advanced method (MMQR); therefore, the difference in results cannot be attributed to methodological differences. Instead, it is rooted in differences in the economic context, institutional settings, and geopolitical position of the two groups of countries. Moreover, the BRICS countries themselves are deeply heterogeneous internally. In sum, in this study, BRICS comprises six members: Brazil, Russia, India, China, South Africa, and Iran. A pooled analysis of these six countries without accounting for structural heterogeneities would be misleading.
Conclusion:
The time period from 1994 to 2020 indicates that BRICS countries, on their path of economic growth, have adopted green taxes as an effective instrument to reduce pollution. The results of this study reveal a persistent and striking pattern across BRICS countries: over all 27 years, green taxes expose a bitter paradox a tax designed to save the planet has, in practice, deepened income inequality, and not in unequal societies but rather in more equitable ones. Neither the financial crisis (2008), nor the oil price collapse (2014), nor the formation of the BRICS bloc (2009–2010) has been able to reverse this relationship.
Even more astonishingly, lower-income deciles in BRICS countries, which contribute the least to environmental degradation, bear the heaviest burden. The increase in energy and basic goods prices resulting from green taxes acts like an invisible tax on bread and lighting for the poor. By contrast, wealthier deciles, which are more closely associated with economic growth, both benefit from the gains of global trade and feel less pressure from green taxes.
Although green innovation offers promise, particularly for middle- and lower-income deciles, it cannot alone heal the wound of inequality. Likewise, while foreign trade reduces inequality in higher deciles, it does not extend its benefits to the lowest income deciles